Samsung SDI beats CATL in EV battery operating margin

Samsung SDI Co., the world’s sixth-largest electric vehicle battery maker, reported a higher operating margin than that of the global leader China’s Contemporary Amperex Technology Co. Ltd. (CATL), while LG Energy Solution Ltd. turned to the black with record sales, indicating South Korean cell manufacturers are key beneficiaries of robust EV demand.

LG Energy, the world No. 2 player, and Samsung SDI are expected to further accelerate growth, taking advantage of the US tax credit law that favors cells with parts made in the country or its free trade partners.

Samsung SDI said on Wednesday that its operating profit surged 51.5% to a quarterly record 565.9 billion won ($400.2 million) in the third quarter from a year earlier with sales up 56.1% to an all-time high of 5.4 trillion won. Its operating margin from the EV battery business stood at 10%, topping CATL's 9.5% margin during the July-September period, despite the latter's cheap labor costs and Chinese government support.

Samsung SDI CEO Choi Yoonho has emphasized focusing on profitability for quality growth.

LG ENERGY LIFTS 2022 SALES FORECAST

Samsung SDI's bigger rival LG Energy also reported an operating profit of 521.9 billion won in the third quarter, swinging from a loss of 372.8 billion won a year earlier. Sales nearly doubled during the period to a record 7.6 trillion won.

LG Energy raised its sales forecast for this year to 25 trillion won from the previous 22 trillion won, saying it is supplying more batteries than expected for the Volkswagen ID. series, the Ford Mustang Mach-E, Tesla cars and others in the second half.

LG Energy and Samsung SDI expected EV demand in Europe and the US, the world’s second and third largest EV markets, respectively, to grow further in the fourth quarter.

TO BENEFIT FROM US IRA

The South Korean battery makers are predicted to benefit from the US Inflation Reduction Act (IRA), which provides tax credits for EVs that require a certain percentage of critical minerals used in their EV batteries to come from the US or its free trade partners.

From next year, EV makers must use batteries with materials sourced primarily in North America for their cars to be eligible for the tax credit of up to $7,500 per unit.

Qualifying EVs must contain at least 40% of the battery minerals and 50% of the battery components from those countries. The proportion will rise to 80% for minerals by 2027 and 100% for parts by 2029.

Samsung SDI Vice President for the strategic marketing division Michael Sohn said the company is in negotiations with automakers on joint ventures in North America.

“Since the announcement of the IRA, talks on large-scale projects have been taking place more actively than before,” Sohn said in an earnings call.

Sohn added that the company is expected to meet the IRA requirements.

LG Energy sees an advantage from the US tax credit.

“The IRA is a great opportunity for LG Energy Solution,” said its chief financial officer Lee Chang Sil. “The local battery production will allow us to receive a large tax credit of $35 per kWh.”

The company has been manufacturing cathodes in the US, which make up much of total production costs, and electrolytes, which are easily produced domestically. It is seeking North American suppliers for anodes, which had been mainly procured from China.

It is looking at ways to deal with Europe’s move to introduce a similar law – the Critical Raw Materials Act – as the US IRA. LG Energy is seeking to set up production bases for cylindrical batteries in addition to Poland.

Write to Hyung-Kyu Kim and Han-Shin Park at khk@hankyung.com
Jongwoo Cheon edited this article.